#1: The Tourists are Back
What happened?
A new fintech company is focused on treasury management:
Amit Jain, the former head of Uber’s Asia Pacific division, revealed his new venture, Zamp Finance, that aims to simplify the process for businesses to invest their excess capital in US Treasury bills to hedge against bank failures and other uncertainties.
Zamp offers a treasury management platform that enables businesses worldwide to invest surplus cash in U.S. Treasury bills and notes, partnering with BNY Mellon Pershing, which manages over $2 trillion. The platform serves businesses of all sizes, it said.
So what?
The company raised a $21.7 million seed round last year, led by Sequoia India and Southeast Asia, with participation from executives including Uber CEO Dara Khosrowshahi, former SoftBank chief operating officer Marcelo Claure, and Doordash chief executive Tony Xu.
A $21.7 million seed round? For corporate treasury management?
Seems a bit weird, yeah?
Ohh, no, wait … yeah, never mind. From a different TechCrunch article last year:
Jain’s startup, which is currently in stealth mode, is building “banking and payments for the crypto economy,” according to its website (which went offline following the publication of this story). The startup, called Zamp, aims to help “web2” firms adopt crypto, according to another person familiar with the matter.
Doug Leone, the former managing partner of Sequoia Capital, once described his firm’s strategy this way:
We want the misfits, the failures, the ones with something to prove. We avoid the tourists
Raising a $21 million seed round to “help web2 firms adopt crypto” and then pivoting, post crypto crash and SVB bank run, into corporate treasury management because, and I quote, “our customers, and a lot of them are startups, are not looking for a particular yield or want to speculate with the cash they have. They are looking for ways to keep their cash safe.” is the definition of a tourist.
#2: A Feature, Not a Product
What happened?
Greenlight is doubling down on partnerships:
Greenlight is making its kid-focused banking services available to traditional financial institutions, the fintech announced on Wednesday.
The new partnership program, called Greenlight for Banks, allows banks and credit unions to offer the fintech’s suite of banking and education products to their customers through a co-branded landing page and app.
Over half a dozen firms, including Morgan Stanley, WaFd Bank and Community Financial Credit Union have partnered with Greenlight to offer the fintech’s services to their customers, Matt Wolf, Greenlight’s senior vice president of business development said.
Greenlight is actively involved in discussions with over 100 financial institutions, he added.
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So what?
The writing has been on the wall for this one for a while.
In 2020, Greenlight partnered with JPMorgan Chase to help them launch a bank account for kids. This is clearly an outgrowth of that partnership, and it makes sense.
Banking for kids and teens is a cool concept, but it’s hard to build a business around it. The customer acquisition costs are similar to what banks and other neobanks are paying, but the opportunities to monetize are scarce. Debit card transactions are fewer and smaller, so interchange isn’t great. Lending isn’t an option. And subscriptions, which Greenlight has been trying, are (I’m guessing) a hard sell. And the biggest problem is that once the kids become adults, they graduate off the platform. You lose them just as they are getting interesting (from a revenue perspective).
This is more of a feature than it is a product, so partnering with banks is an obvious direction to go.
My question is, how big of a priority is this feature for banks? They’re not going to make a lot of money from this either, so I could see it not being #1 on a lot of roadmaps.
#3: WHAT ARE YOU DOING?!?
What happened?
Smoakland, a cannabis dispensary and delivery business based out of the Bay Area, is beta-testing a new way for consumers to pay:
even after recreational cannabis became legal in 21 states and decriminalized in another dozen or so, cannabis has become largely a cash business. In a world that is increasingly cashless, that’s a problem for both consumers and businesses. Smoakland is currently beta-testing a loophole that lets its customers pay by credit card. The secret, it turns out, is crypto.
“You’re not actually purchasing cannabis with a credit card,” says Jeff Dillon, managing director of Marketing at Smoakland. “You’re purchasing crypto, and then we immediately use the crypto to purchase cannabis, before cashing the crypto back out. That way, your credit card company knows users are purchasing crypto. Crypto doesn’t give a shit what you do with it. For my purpose, and for the purpose of the customer, [the payment processor has] no idea what’s going on.”
So what?
On one level, I get where Smoakland is coming from with this. Your customers can’t buy your product with their credit cards, and, with inflation rising and a potential recession coming, they can’t afford to buy as much of it with cash:
“We’re seeing this cash crunch, and a quasi-recession that we’re going into. You can really see that between pay periods the difference in average order size varies. I’m starting to kind of pick up on this trend: The first and 15th, people have a lot more money to spend, and the average order sizes are higher,” Dilon explains.
But on literally every other level, WHAT ARE YOU DOING?!?
I don’t know how this is going to work exactly, but it sounds like Smoakland has set up an account with a payment processor to handle the credit card-to-crypto part of the transaction and a crypto exchange to handle the crypto buying and selling. And, I guess, when a customer wants to buy cannabis, they actually buy crypto, give the crypto to Smoakland, and then Smoakland gives them the cannabis and sells the crypto and deposits the cash into their bank account?
I can’t imagine that the banks involved in the various parts of this transaction will have any questions or concerns. Nor, I’m sure, will the card networks or the government.
Also, this quote:
The Smoakland team says it is at the bleeding edge here, and wants to keep its cards close to its chest regarding who the exact payment processor is.
I’m trying to imagine the conversation that led to this article getting written:
Smoakland Team: We’ve come up with this really cool, legally dubious way to use credit cards to buy cannabis by routing it through crypto first.
PR Agency: Cool! We’ll call TechCrunch!
Smoakland Team: Great!
Smoakland Team: Whoa, whoa! Hold on. Make sure that no one tells them who our payment processor is. That could get us into trouble.
PR Agency: No problem.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Deposit Insurance Maximization as a Service (by Patrick McKenzie, Bits About Money)
In the wake of SVB, seemingly everyone in fintech is discovering what deposit sweeps are. Many B2B neobanks have been adding this functionality to their products, multiplying the effective insurance coverage offered by the FDIC.
If you’re curious about how this functionality actually works, read this article.
#2: Why aren’t there more winner-take-all dynamics in fintech? (by Matt Brown)
This is a wonderful question, and Matt does a great job in this article breaking it down and proposing some hypotheses for why winner-take-all dynamics aren’t really a thing in financial services.
1 QUESTION TO PONDER
What are the top-5 things that fintechs do that annoy their BaaS bank partners? And what are the top-5 things that sponsor banks do that drive fintech companies crazy?
I’m going to be writing about compliance and BaaS, and I’d love to hear from you if you work on either side of this divide.
